Harvest Capital Credit Corporation Announces September 30, 2013 Financial Results and Declares Dividends for October, November and December Business Wire NEW YORK -- November 12, 2013 Harvest Capital Credit Corporation (“Harvest Capital” or the “Company”) (NASDAQ:HCAP), announced that its Board of Directors has declared dividends of $0.1125 per share for the months of October, November and December. The October dividend is payable on November 29, 2013 to shareholders of record on November 21, 2013. The November dividend is payable on December 26, 2013 to shareholders of record on December 19, 2013. The December dividend is payable on January 23, 2014 to shareholders of record on January 16, 2014. These dividends equate to an annualized dividend yield of 9% based upon the Company’s $15.00 per share IPO price. September 30, 2013 Financial Results Harvest Capital also announced financial results for the three and nine months ended September 30, 2013. FINANCIAL HIGHLIGHTS Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended September 30, 2013 September 30, 2012 September 30, 2013 September 30, 2012 Per Per Per Per Amount share Amount share Amount share Amount share (1, 2) (1, (1, (1, 2) 2) 2) Core net investment $1,390,827 $0.23 $526,012 $0.50 $3,521,692 $0.91 $1,190,538 $1.56 income (3) Net investment $1,474,091 $0.24 $209,171 $0.20 $3,501,895 $0.91 $855,144 $1.12 income ("NII") Net unrealized appreciation $(360,137) $(0.06) $1,584,207 $1.50 $98,991 $0.03 $1,676,972 $2.19 (depreciation) Net income $1,113,954 $0.18 $1,793,378 $1.70 $3,600,886 $0.93 $2,532,116 $3.31 Weighted average shares 6,097,708 1,057,662 3,856,705 764,689 outstanding (basic) Weighted average shares 6,098,160 1,057,662 3,857,157 764,689 outstanding (diluted) (1) All per share amounts are basic and diluted unless indicated otherwise. The Company acquired all of the interests of Harvest Capital Credit LLC (“HCC LLC”) on May 2, 2013 and did not have any operations prior to the acquisition. As such, for the periods prior to the acquisition, we are presenting the historical financial results of HCC LLC as our financial results. When we acquired HCC LLC, we issued shares of our (2) common stock in exchange for all of HCC LLC's outstanding membership interests at a rate of .9913 shares for each membership interest. As a result of this transaction, we have retroactively applied the aforementioned exchange/conversion rate to all unit measurements relating to HCC LLC's membership interests for both periods presented and have replaced all references to membership interests of HCC LLC herein with shares of common stock of the Company. Core Net Investment Income and Core Net Investment Income per share are non-GAAP financial measures that are calculated by excluding changes in the accrued capital gains incentive fees that affect Net Investment Income for GAAP purposes. Such accrued fees are related to the cumulative net unrealized appreciation in the Company’s investment portfolio as of September 30, 2013. The capital gains incentive fee is determined and paid annually with respect to realized capital gains (but not unrealized capital gains) to the extent such realized capital (3) gains exceed realized and unrealized capital losses for such year. As a result, the capital gains incentive fee that will be paid by the Company for its 2013 fiscal year cannot be determined prior to the end of the year and will only be paid with respect to the excess, if any, of the Company’s realized capital gains through December 31, 2013, over all realized and unrealized capital losses through December 31, 2013. Reconciliations of Core Net Investment Income and Core Net Investment Income per share to the most directly comparable GAAP financial measure are set forth in Schedule 1 hereto. PORTFOLIO ACTIVITY September December 30, 31, 2013 2012 Portfolio investments $51,749,013 $41,511,318 at fair value Total assets $91,451,241 $49,745,038 Net assets $89,790,816 $19,806,327 Shares 6,111,961 1,172,688 outstanding Net assets $14.69 $16.89 per share Three Months Ended Nine Months Ended September September September September 30, 30, 30, 30, 2013 2012 2013 2012 Portfolio Activity during the period: New $13,300,000 $3,450,000 $18,800,000 $18,825,000 commitments New fundings on existing - - 1,600,000 - commitments Exits of $(2,500,000) - $(6,736,117) - commitments Net activity $10,800,000 $3,450,000 $13,663,883 $18,825,000 September December 30, 31, 2013 2012 Weighted average yield of debt investments: at fair 17.6% 17.6% value (1) at cost (2) 17.7% 17.7% Computed as (a) annual stated interest rate or yield earned plus the (1) net annual amortization of original issue discount and other deferred fees earned on accruing debt investments, divided by (b) total debt investments at fair value. Computed as (a) annual stated interest rate or yield earned plus the (2) net annual amortization of original issue discount and other deferred fees earned on accruing debt investments, divided by (b) total debt investments at amortized cost. OPERATING RESULTS For the quarter ended September 30, 2013 the Company reported a 38% decrease in net income, a 164% increase in Core Net Investment Income and a 605% increase in Net Investment Income compared to the quarter ended September 30, 2012. Net income for the quarter ended September 30, 2013 was $1,113,954, or $0.18 per share, compared to $1,793,378, or $1.70 per share, for the quarter ended September 30, 2012. Core Net Investment Income was $1,390,827, or $0.23 per share, for the quarter ended September 30, 2013 compared to $526,012, or $0.50 per share, for the quarter ended September 30, 2012. Net Investment Income was $1,474,091, or $0.24 per share, for the quarter ended September 30, 2013 compared to $209,171, or $0.20 per share, for the quarter ended September 30, 2012. For the nine months ended September 30, 2013, the Company reported a 42% increase in net income, a 196% increase in Core Net Investment Income and a 310% increase in Net Investment Income compared to the nine months ended September 30, 2012. Net income for the nine months ended September 30, 2013 was $3,600,886, or $0.93 per share, compared to $2,532,116, or $3.31 per share, for the nine months ended September 30, 2012. Core Net Investment Income was $3,521,692, or $0.91 per share, for the nine months ended September 30, 2013 compared to $1,190,538, or $1.56 per share, for the nine months ended September 30, 2012. Net Investment Income was $3,501,895, or $0.91 per share, for the nine months ended September 30, 2013 compared to $855,144, or $1.12 per share, for the nine months ended September 30, 2012. As of September 30, 2013, total assets were $91.5 million, net assets were $89.8 million and the net asset value per share was $14.69. During the third quarter of 2013, the Company closed a $4.0 million senior secured debt investment in Infinite Aegis, an operator of urgent care facilities. The investment carries an interest rate of LIBOR plus 15.0% all of which is cash interest. As part of the investment the Company also acquired common equity warrants representing a 3% ownership of the portfolio company on a fully diluted basis and received an upfront fee at closing. The Company also closed a $4.3 million junior secured subordinated debt investment in Americana Holdings (“Americana”), a real estate brokerage services company. The investment carries a fixed interest rate of 13.0% all of which is cash interest. As part of the investment the Company acquired a royalty security in the business which allows the Company to earn a percentage of Americana’s future revenue growth. The Company also received an upfront fee at closing. Also during the quarter, the Company received a $2.5 million payoff at par of its investment in WBL, SPE I, LLC (“WBL”), a small business lender. The exit of this transaction produced accelerated fee amortization on the investment of $49.7 thousand and an internal rate of return of over 25%. Subsequent to the exit of this particular investment in WBL, the Company re-invested in WBL, committing $5.0 million to the senior secured credit facility that was used to pay off our original investment. $1.25 million of our commitment was funded at close. The Company’s commitment represented 25% of the total $20.0 million financing arranged by another financial institution. The new commitment carries a fixed interest rate of 15%, all of which is cash interest. The Company also received an upfront fee at closing. “Third quarter deployment was not as robust as we had originally planned based on the early activity of the quarter. While maintaining our credit and pricing discipline throughout the quarter, we did close three transactions: two entirely new investments and one investment in a refinancing transaction to an existing portfolio company totaling $13.3 million in investment commitments. The portfolio continued to perform well during the quarter with a 1.88 weighted average internal risk rating as of September 30, 2013,” said Richard P. Buckanavage, President and CEO. “Going into the fourth quarter, we are witnessing market activity at a level not seen since the third and fourth quarters of 2012, giving our origination efforts substantial momentum. The uptick began in early September and has allowed us to begin the fourth quarter of this year in a strong position by closing three additional investments totaling $12.5 million in investment commitments since quarter end,” added Mr. Buckanavage Our historical expense structure changed as a result of our completion of the IPO as follows: *The base management fee payable to our investment adviser prior to the IPO was calculated at an annual rate of 2.0% of our gross assets, including assets acquired with the use of borrowings. However, our investment adviser had agreed to waive the base management fee payable to it prior to the IPO with respect to any assets acquired by us through the use of borrowings under our secured revolving credit facility with JMP Group LLC until such time that the facility had been repaid in full and terminated. Moreover, our investment adviser received a base management fee prior to the IPO with respect to cash and cash equivalents held by us. Subsequent to the IPO, the base management fee is calculated based on our gross assets (which includes assets acquired with the use of leverage, but excludes cash and cash equivalents) at an annual rate of 2.0% on gross assets up to and including $350 million, 1.75% on gross assets above $350 million and up to and including $1 billion, and 1.5% on gross assets above $1 billion. Moreover, the waiver agreement described above with respect to assets acquired by us through the use of borrowings under the secured revolving credit facility was terminated in connection with our IPO. As a result, a base management fee is now payable to our investment adviser on all assets acquired by us through the use of borrowings. *Our investment adviser has agreed to permanently waive all or such portion of the incentive fee that it would otherwise collect from us to the extent necessary to support a minimum dividend yield of 9% for the period of time commencing with our IPO through March 31, 2014. The minimum dividend yield of 9% is paid on shares of our common stock currently outstanding and the shares of common stock issued pursuant to our dividend reinvestment plan during the waiver period, and is calculated based upon our IPO price of $15 per share. Incentive fee expense for the quarter ended September 30, 2013 was a reversal of $83,264 in incentive fee expense accrued prior to the IPO on the Company’s net unrealized appreciation and not exceeding the income incentive fee hurdle for the period of time following the IPO through the end of the third quarter of 2013. The Company had net depreciation of $360,137 in the quarter and net depreciation of $416,321 since the IPO. The reversal of incentive fee expense is equal to 20% of the net depreciation in the portfolio since the IPO. *Only a portion of the 2013 periods (i.e., from May 2, 2013, the date of our IPO, to September 30, 2013) reflect the change in our historical expense structure for the items noted above as well as our operations as a public company. As a result, the full impact of such changes will be more evident in future periods. CREDIT QUALITY The Company employs an investment rating system to categorize its investments. In addition to various risk management and monitoring tools, the Company grades the credit risk of all investments on a scale of 1 to 5 no less frequently than quarterly. Under this system, an investment with a grade of 1 involves the least amount of risk and indicates performance from the portfolio company that exceeds underwritten expectations. Investments graded 2 involve a level of risk that is similar to the risk at the time of origination or acquisition. The portfolio company is generally performing as expected and the risk factors to our ability to ultimately recoup our investment are neutral to favorable. All investments in new portfolio companies are initially assessed a grade of 2. Investments graded 3 indicate that the portfolio company is performing below expectations and requires closer monitoring. Investments graded 4 indicate performance substantially below expectations where some loss of return but no loss of principal is expected; however, payments are generally not more than 90 days past due. An investment grade of 5 indicates that the risk to our ability to recoup our investment has substantially increased since origination or acquisition, the portfolio company likely has materially declining performance, and some loss of return and principal is expected. For debt investments with an investment grade of 5, most or all of the debt covenants are out of compliance and payments are substantially delinquent. As of September 30, 2013, the weighted average grade of the investments in our portfolio was 1.88. Also, as of September 30, 2013, twelve of the Company’s debt investments were rated 2. Two investments were rated 1 and one was rated 3. No loans were rated 4 or rated 5 or were on non-accrual status as of September 30, 2013. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2013, we had $38.8 million of unrestricted cash and had $50.0 million in availability under our secured revolving credit facility with JMP Group LLC, but no outstanding borrowings thereunder. When we completed our IPO in May 2013, we paid down the balance of our secured revolving credit facility with JMP Group LLC with a portion of the net proceeds. SIGNIFICANT DEVELOPMENTS SUBSEQUENT TO SEPTEMBER 30, 2013 On October 29, 2013, the Company closed on a new $55 million credit facility (the “Credit Facility”) with CapitalSource Bank and City National Bank. The new Credit Facility is secured by all of the Company’s assets and has a two year revolving period and a three year amortization period. Advances under the Credit Facility bear interest at a rate of LIBOR plus 4.50%. The new Credit Facility also has an accordion feature that allows the size of the facility to increase to $85 million. The new Credit Facility replaces the Company’s senior secured revolving credit facility with JMP Group LLC, which was terminated concurrently with the Company’s entry into the new Credit Facility. On October 4, 2013, the Company closed a $5.0 million senior secured debt investment in PD Products, a manufacturer and distributor of novelty products. The investment carries an interest rate of LIBOR plus 10.50% with a LIBOR floor of 1.50%. As part of the investment the Company also received an upfront fee at closing. On October 8, 2013, the Company closed a $4.5 million second lien term loan investment in Arsloane (Pitney Bowes), a document and information management solutions company. The investment carries an interest rate of LIBOR plus 10.50% with a LIBOR floor of 1.25%. Our cost in the investment is 98.6% of par. The 1.4% discount will be deferred and accreted into interest income over the life of the investment. On October 29, 2013, the Company received a $2.0 million payoff at par of its investment in Blackboard, Inc., a software provider for schools. As part of the payoff, the Company received a prepayment penalty of $60.0 thousand and had accelerated fee amortization of $166.4 thousand. The transaction produced an internal rate of return of over 20%. On October 30, 2013, the Company increased its debt investment by $3.0 million in one of its existing portfolio companies, CRS Reprocessing (“CRS”). The investment was in the same security as the original investment in CRS and carries the same interest rate. CONFERENCE CALL The Company will host a conference call on Tuesday, November 12, 2013 at 10:00 a.m. Eastern Time to discuss its third quarter results. All interested parties are invited to participate in the conference call by dialing (888) 566-6060. Participants should enter the Conference ID 98755854 when prompted. ABOUT HARVEST CAPITAL CREDIT CORPORATION Harvest Capital Credit Corporation (NASDAQ:HCAP) provides customized financing solutions to privately held small and mid-sized companies in the U.S., generally targeting companies with annual revenues between $10 million and $100 million and annual EBITDA between $2million and $15 million. The Company’s investment objective is to generate both current income and capital appreciation primarily by making direct investments in the form of subordinated debt and, to a lesser extent, senior debt as well as minority equity investments. Harvest Capital Credit Corporation is externally managed and has elected to be treated as a business development company under the Investment Company Act of 1940. Forward Looking Statements Statements other than statements of historical facts included in this press release may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of assumptions, risks and uncertainties, which change over time. Actual results may differ materially from those anticipated in any forward-looking statements as a result of a number of factors, including those described from time to time in filings by the Company with the Securities and Exchange Commission. The Company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of the date of this press release. Harvest Capital Credit Corporation Statements of Assets and Liabilities September 30, December 31, 2013 2012 (unaudited) ASSETS: Non-affiliated/non-control investments, at fair value (cost of $ 50,173,062 $ 39,595,162 $47,704,894 @ 9/30/13 and $37,637,558 @ 12/31/12) Affiliated investments, at fair value (cost of $1,987,525 @ 9/30/13 1,575,951 1,916,156 and $1,916,156 @ 12/31/12) Total investments, at fair value (cost of $49,692,419 and 51,749,013 41,511,318 $39,553,714, respectively) Cash 38,804,740 7,639,801 Interest receivable 322,570 166,592 Accounts receivable - other 48,073 - Deferred financing costs 221,303 180,786 Other assets 305,542 246,541 Total assets $ 91,451,241 $ 49,745,038 LIABILITIES: Revolving line of credit - related $ - $ 28,226,666 party Accrued interest payable - related 63,194 304,293 party Accounts payable and accrued 1,273,915 1,231,006 expenses Other liabilities 323,316 15,971 Total liabilities 1,660,425 29,777,936 Commitments and contingencies Mezzanine equity - 160,775 NET ASSETS: Common stock; 100,000,000 shares authorized, and 6,111,961 and 6,112 17,266,955 1,172,688 issued and outstanding , respectively Capital in excess of common stock 87,728,108 581,768 Net unrealized appreciation on 2,056,596 1,957,604 investments Total net assets 89,790,816 19,806,327 Total liabilities and net assets $ 91,451,241 $ 49,745,038 Common stock issued and outstanding 6,111,961 1,172,688 Nets asset value per common share $ 14.69 $ 16.89 Harvest Capital Credit Corporation Statements of Operations (unaudited) Three Months Three Nine Months Nine Months Months Ended Ended Ended Ended September 30, September September September 2013 30, 2012 30, 2013 30, 2012 Investment Income: Interest: Cash - non-affiliated/non-control $ 1,565,699 $ 844,352 $ 4,340,757 $ 2,001,215 investments Cash - affiliate 56,210 - 165,554 - investments PIK - non-affiliated/non-control 242,865 130,306 795,702 339,567 investments PIK - affiliate 14,396 - 42,611 - investments Fee amortization, net 172,385 42,637 550,950 87,921 Total interest income 2,051,555 1,017,295 5,895,574 2,428,703 Other income - - - 40,000 Total investment income 2,051,555 1,017,295 5,895,574 2,468,703 Expenses: Interest expense - - 183,705 627,568 568,466 revolving line of credit Interest expense - unused 63,889 26,852 115,360 68,766 line of credit Interest expense - 10,882 9,243 35,786 27,142 deferred financing costs Total interest expense 74,771 219,800 778,714 664,374 General and administrative 265,492 31,721 608,416 91,947 Base management fees 250,048 78,259 497,120 156,710 Incentive management fees (83,264 ) 448,344 303,179 633,028 Administrative services 70,417 30,000 206,250 67,500 expense Total expenses 577,464 808,124 2,393,679 1,613,559 Net investment income 1,474,091 209,171 3,501,895 855,144 Net change in unrealized (depreciation) (360,137 ) 1,584,207 98,991 1,676,972 appreciation on investments Total net unrealized (losses) gains on (360,137 ) 1,584,207 98,991 1,676,972 investments Net increase in net assets $ 1,113,954 $ 1,793,378 $ 3,600,886 $ 2,532,116 resulting from operations Net investment income per $ 0.24 $ 0.20 $ 0.91 $ 1.12 share (basic and diluted) Net increase in net assets resulting from operations $ 0.18 $ 1.70 $ 0.93 $ 3.31 per share (basic and diluted) Weighted average shares 6,097,708 1,057,662 3,856,705 764,689 outstanding (basic) Weighted average shares 6,098,160 1,057,662 3,857,157 764,689 outstanding (diluted) SCHEDULE 1 Reconciliations of Net Investment Income to Core Net Investment Income Q3 '13 Q3 '12 YTD '13 YTD '12 Per Per Per Per Amount share Amount share Amount share Amount share (1) (1) (1) (1) Net investment $1,474,091 $0.24 $209,171 $0.20 $3,501,895 $0.91 $855,144 $1.12 income Plus: incentive fees attributed to the capital gains incentive $(83,264) -$0.01 $316,841 $0.30 $19,797 $0.01 $335,394 $0.44 fee Core net investment $1,390,827 $0.23 $526,012 $0.50 $3,521,692 $0.91 $1,190,538 $1.56 income (1) Per share data has been adjusted for the conversion rate of 0.9913 shares for each unit. Contact: Investor & Media Relations Harvest Capital Credit Corporation Richard Buckanavage, 212-906-3592 President & Chief Executive Officer email@example.com or Craig Kitchin, 678-392-3150 Chief Financial Officer firstname.lastname@example.org
Harvest Capital Credit Corporation Announces September 30, 2013 Financial Results and Declares Dividends for October, November
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